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Nomura Puts F&N On Review

Contributed by Shares Investment

Nomura issued a note dated 3 February, Friday, saying that it will be reviewing its forecasts for Fraser & Neave (F&N). This was following a dismal 1Q12 performance by its 56.43%-owned F&N Holdings.

Coming in lower than Nomura’s projections, F&N Holdings’ earnings took a hit as its manufacturing plant in Rojana, Thailand, was shut down due to floods in that country. As a result of the disruption, the Thai dairy arm dived into an operating loss of RM11.6 million owing to a 57.5% plunge in sales. Fortunately, the operating loss is covered under its Business Interruption insurance policy.

Meanwhile, the cessation of the Coke bottling business, effective 1 October last year, also weighed on the Malaysia-based F&N Holdings’ results. Its Soft Drinks segment saw turnover tumbled 21.7% year-on-year while operating profit shaved a hefty 53.4% off to RM41.17 million.

The Malaysian diary business posted lower sales of RM262.21 million as well on impacts of the removal of sugar subsidies. The 11.9% year-on-year drop was further compounded by accelerated factory building depreciation due to relocation.

As a whole, aggregate revenue fell 27.7% year-on-year to RM743.3 million. Stripping Coca-Cola’s sales contribution of RM134 million last year, turover dropped 16.9%. On a lighter note, on the basis of the abovementioned assumption, Soft Drinks revenue gained 9% on newly launched products with help from sales to the additional territory of Brunei and contract packing for export to its related company in Singapore.

Looking ahead, the company said its operating results will be much lower than that of FY11 due to the absence of Coca-Cola business and the challenges face by Dairies business in Malaysia and Thailand. Still, the non-operating items of deferred tax income and crystallisation of capital gain of RM55 million which is expected to be booked in the second quarter are projected to support results.

Pending the review, Nomura maintained its ‘Buy’ rating on F&N with a target price of $7.29. F&N is slated to announce its first quarter results on Friday, 10 February.